Investors say industry’s fundamentals remain strong.

By Brian Gormley

(WWW.WSJ.COM)–Ini­tial pub­lic of­fer­ings by biotech­nol­ogy com­pa­nies are slow­ing af­ter two record-set­ting years as the poor per­formance of some re­cent IPOs com­bined with eco­nomic and geopo­lit­i­cal un­cer­tain-ties have cooled in­ter­est in the sec­tor.

Seven biotech com­pa­nies have gone pub­lic in the U.S. this year as of Feb. 22, com­pared with 21 as of the same date in 2021, ac­cord­ing to data from Nas­daq, the ex­change that hosted nearly all of those stock-mar­ket de­buts.

Surg­ing in­no­va­tion and biotech’s role in com­bat­ing the pan­demic drew in­vestors to the in­dus­try in 2021 and 2020. Last year, 111 biotechs went pub­lic in the U.S., top­ping the pre­vi­ous peak of 91 in 2020, ac­cord­ing to Nas­daq.

Over the past year the SPDR S&P Biotech ETF, an equal-weighted in­dex of biotech stocks, fell by about 44%, while the S&P 500 is up slightly. That, along with macro­economic con­cerns, such as the prospect of ris­ing in­ter­est rates and a po­ten­tial Russ­ian in­va­sion of Ukraine, is giv­ing IPO buy­ers pause, in­vestors said.

“The in­dus­try was in for a re­bal­anc­ing,” said Nina Kjell­son, a gen­eral part­ner with ven­ture firm Canaan Part­ners.

In­vestors have been in­un­dated with biotech IPOs, and there haven’t been a sig­nif­i­cant num­ber of stand­out clin­i­cal-trial suc­cesses re­cently, said Rahul Chaud­hary, head of health­care eq­uity cap­i­tal mar­kets for in­vest­ment bank SVB Se­cu­ri­ties LLC. With the shares of sev­eral biotechs trad­ing down since they went pub­lic, in­vestors don’t nec­es­sar­ily have to buy into IPOs when seek­ing at­trac­tive op­por­tu­ni­ties, he added.

“The sheer num­ber of com­pa­nies that came pub­lic made peo­ple stop and say, ‘Maybe we need to slow down the spigot,’” Mr. Chaud­hary said.

The tight­en­ing IPO mar­ket hasn’t led to dras­tic changes in biotech ven­ture-cap­i­tal fi­nanc­ings yet, in­vestors said. U.S. biotech star­tups raised $29.66 bil­lion in ven­ture cap­i­tal last year, up from $20.05 bil­lion in 2020 and $12.55 bil­lion in 2019, ac­cord­ing to Sil­i­con Val­ley Bank.

Ad­di­tion­ally, U.S. health­care ven­ture cap­i­tal­ists se­cured $28.3 bil­lion in 2021, com­pared with $16.8 bil­lion the year be­fore, ac­cord­ing to SVB.

Be­cause many biotech star­tups are well funded and ven­ture cap­i­tal re­mains abun­dant, biotechs have yet to feel a sig­nif­i­cant pinch, though that will change if the IPO slow­down per­sists well into this year, some in­vestors said.

Ally Bridge Group has been ad­vis­ing star­tups not to rush to­ward IPOs be­cause pri­vate cap­i­tal is read­ily avail­able, said Frank Yu, the firm’s founder, chief ex­ec­u­tive and chief in­vest­ment of­fi­cer. Ally in­vests in pri­vate and pub­lic health­care com­pa­nies.

Many in­dus­try fun­da­men­tals re­main strong, in­vestors and an­a­lysts said, cit­ing con­tin­ued in­no­va­tion and re­duced reg­u­la­tory un­cer­tainty be­cause of the re­cent con­fir­ma­tion of Robert Califf as com­mis­sioner of the Food and Drug Ad­min­is­tra­tion.

Biotech IPOs will re­bound as com­pa­nies gen­er­ate pos­i­tive clin­i­cal trial data and broader mar­ket chal­lenges sub­side, some ob­servers added. The num­ber of biotechs plan­ning to go pub­lic in the next 12 to 18 months re­mains com­pa­ra­ble to the num­ber in re­cent years, said Jor­dan Saxe, head of health­care list­ings for Nas­daq.

“The in­ven­tory is strong, the ques­tion is go­ing to be on the de­mand side—how many end up get­ting out this year ver­sus next year,” Mr. Saxe said.

Biotechs also shouldn’t fix­ate on IPOs, said Lee Cooper, a ven­ture in­vestor with Leaps by Bayer, the ven­ture-cap­i­tal arm of life-sci­ences com­pany Bayer AG.

In biotech, IPOs should be thought of as one way of fund­ing the de­vel­op­ment of a new med­i­cine, he said.

“[An] IPO is a ma­jor fi­nanc­ing event,” Mr. Cooper said. “But it is not the endgame for a biotech com­pany.”